Life Insurance License Exam Notes Pt. 1

hi I'm Tyra and I'm recording my notes today to share with you so that I can help you pass the life insurance licensing exam I've been tutoring and helping people to pass this exam for the past two years I've helped over a hundred people in five states pass this exam and so I'm recording my notes as a way to give back because I believe that we are change agents when we tap into our passion our purpose that we are doing our job to help better the community and I know one of the things that are truly impactful is financial services taking care of the widows and the orphans right basic Bible stuff but also if you're a social innovator or an entrepreneur it's a great way to make money and also have a great impact in the community and so I'm super excited about it I personally keep my life insurance and my investment license up to date and I'm excited to share these notes with you because I believe that if you are taking this test seriously then you have a special purpose in your community even if you just write one or two policies that you're gonna impact some families and you're gonna make a difference and so I'm super excited to share my notes with you I cannot guarantee that you're passing this exam by watching these videos and so I won't even begin to pretend like this is the end-all to be all to what you need to do to pass your exam of course you want to fill out all your paperwork correctly you want to take any required pre-licensing based on your state I just want to share the notes that have helped me and over 100 people pass this exam so my start off with some basic insurance concepts the way that I passed I recorded myself to get me to talking about my notes and then I would play it back over and over and over again anybody who rode in the car with me at that time they knew we were listening to Life Insurance test notes and life insurance terms for success and it's one of the best ways to study is by really committing this stuff to your memory unfortunately this exam is not one of those exams I would encourage you to cram for this is an exam that if you really understand the concepts you can answer any of the questions and so don't stress about the exam I want to your anxiety level down what I really want you to focus on is really committing this information to your memory and understanding it and once you understand a few key concepts you're gonna knock your test out I promise so step one we're gonna take a deep breath we're gonna say I passed okay this is this is over now that you have some information to study from so I start off with some basic terms insurance what is insurance insurance is a transfer of risk one party says if you encounter a loss I'll take care of it that's all it is insert insurance is a transfer of risk so imagine in a car accident if there's a loss of property for example my car's damaged that's a loss of money I take time off from work that's a loss of money I get hurt and have to go to the hospital that's a loss of money right well guess what if I have car insurance that risk of that loss is now transferred to the insurance company and so the insurance company takes care of the cost of those things as long as I pay my premium so insurance is a transfer of risk now let's talk about what a loss is so loss is a reduction or decrease in value so in an insurance loss is caused by paral paral PE r IL paral paral is because of the loss so for example in the cart situation we just talked about there was an accident at five o'clock on Monday right it's a peril that's the actual cause of the loss so risk risk is the chance of a loss occurring that's all risk is the chance of a loss occurring so with risk there's some uncertainty every time I get in my car there's some uncertainty about what could happen right well if I'm taking risk like that they're different types of risks that you could take there pure risk for example death is a pure risk only the chance of loss pure risk only the chance of a loss and then their speculative risk like gambling right down gambling speculative risk means there's a chance of a loss or gain and so speculative risks are not insurable pure risk are insurable hazards are the conditions that increase the chance of a loss occurring so a hazard is going to increase the chances of a loss occurring so there are different types of hazards you have physical hazards these are individual characteristics so think about a poor health background that's an individual characteristic physical hazards risky behaviors like scuba diving so those are physical hazards and you have moral hazard so a moral hazard next to that write down no morals the easiest way for me to remember this one was that moral hazards are scam fraud these are people who have no morals they would do bad things and so a person who maybe has submitted a fraudulent claim in the past is a moral hazard next morale hazard mo RAL morale hazard a morale hazard this is a person who has an indifference to loss so morale hazards carelessness breakdown carelessness if a person's careless they're likely to do something like text and drive or put up on put on makeup and drive those kinds of things they're careless that person is taking an action without thinking of law so they have an indifference to the loss the potential loss stop up pillow so peril that's the actual cause of the loss peril is different so it's different based on the type of insurance we're talking about in the example of life insurance the financial loss is caused by the premature death of the insured okay so death is the peril and life insurance health insurance covers you in the case of sickness or injury so that would be the peril sickness or injury medical expenses loss of income caused by sickness and injury that's the peril property insurance loss of the physical property or loss of its income producing abilities so the house burns down or the it's you know for some reason flooded or something it's out of commission it can no longer be a rental property so those types of things that's the peril in the case of casualty insurance it insures against the loss or damage of the property that results in liability for you all right so let's talk about exposure exposure is a unit of measure that allows the insurance company to see how much risk they're taking on so exposure it's a unit of measure used to determine rates charged for insurance coverage and so if somebody has high risk a lot of risky behavior poor medical history that is high exposure that's the lots of exposure for the company all right so when they're determining rates their factors that they look at factors that are looked at when companies determine rates number one the age of the insured medical history occupation and gender or sex your book might say sex or your notes so the age of the insured the medical history occupation and sex life insurance companies use what's called mortality tables mortality tables mortality tables help to take a look at how often men die women die what age is those kinds of things and then health insurance looks at morbidity tables all right women cost more on health insurance and men cost more on life insurance all right so let's talk about when companies look at units they're a lot of times they're looking at homogenious unit that means this is a large group of people that are experiencing the same or similar risk homogenious just means same large group that experience same or similar risk now there are different methods of handling risk we talked about insurance being one of those insurance is a transfer of a risk that's just one way of handling risk but you also have what I call the star method of remembering this so write down star s T and I want to make a note here all of the notes and things that I've gathered over the years have been from talking with other students tutoring people coming up with stuff in my own brain teachers that I've talked to that have mnemonics and different memory hooks and so I don't claim to have created all of these notes and so I don't I don't want it to be mistaken that I'm trying to say you know all of these are my original creations no that's not it what I'm sharing with you is what I've picked up over the last couple years I've been licensed since 2015 and I've been tutoring people since then and so what I've picked up over time from various individuals so let's go back to star s T arr that's the method of handling risk let's talk about the first one is risk for sharing we're gonna call this reinsurance reinsurance this is what companies have it's a method of handling risk for a group of individuals with the same or similar exposure so formal risk sharing arrangements alright let's talk about tea transfer next to that I want you to write insurance is a transfer of risk so insurance does not eliminate the risk it is just transferring the loss from you to the company avoidance a is avoidance so that's if somebody says I'm never gonna drive in a car cuz I don't even want to be in a car accident that's avoidance avoiding the risk the first R is for reduction reduction of risk so that would include something like putting a smoke detector in your house or deciding to get really really super healthy to reduce the risk of a loss reduction of risk just basically means you're reducing the risk of the loss occurring and the last is retention of risk risk retention is something I know in my life I've seen in the real estate industry where folks who are flipping houses or maybe they have rental property that they can't insure the total amount of they will retain some of their risk this is also a business practice that you'll see so next to risk retention next to retention I want you to write planned assumption of risk the planned assumption of risk and so imagine we women we go through this all the time we retain water it means that we hold on to it so when we're talking about retention of risk think about holding your own risk so it could be done through saving money for deductible in insuring yourself so having enough cash on hand to cover a loss so that's retention of risk the purpose of retention is number one to reduce expenses and improve cash flow to increase control of claim reserving and claim settlements and number three to fund for losses that cannot be insured to fund for losses that cannot be insured so let's say you built a house out on a pier and you can't get flood insurance and you live in a hurricane state then you may save enough money to be able to take care of rebuilding at home because you know you cannot insure against that loss alright so talk about the elements of insurable risk this is how you know that a risk is insurable because remember we talked about speculative risk are not sharable so not all risk are insurable risk have the following well number one the loss is due to chance it's outside of your control the loss is due to chance next is definite and measurable it occurred at a certain time at a certain place there's a definite amount that's been lost so the loss is definite and it's measurable it's statistically predictable so insurance companies can factor a rate based on statistics based on past history not your past history past history of you know how many firefighters you know pass away X Y Z or how many teenagers you know pass away X Y Z and so in order to set appropriate rates has to be statistically predictable they have to be able to estimate a frequency and cost for this not catastrophic that's the next one it's not catastrophic so insurers need to reasonably be certain of their losses that it would not exceed a specific amount so not catastrophic and sometimes you'll see where in an insurance policy it may say not you know X of God or not covered or you know if everything was bombed the earth was scorched everything was burned down you know it would be really difficult for insurance companies even calculate - to really cover all of the losses to cover everybody's losses and so not catastrophic and I want to encourage you on this section just memorize what these are I'm trying to give you some examples of how to make it stick in your head cuz this is how it's stuck in my head but honestly this is one of those cases where you're not you want to have to understand the concept you're not gonna have to really memorize all of this and the next unless on this section randomly selected a large loss exposure randomly selected a large loss exposure there must be a large enough pool of people occupation age health-wise there must be a large enough pool of people that can face these circumstances in order for them to accurately calculate whether or not this risk is insurable so let's talk about the law of large numbers law of large numbers states that the larger the number of people with a similar exposure to loss the more predictable the actual loss will be so the larger the number of people who are experiencing these same circumstances the easier it is for the company more accurately predict what's gonna happen how much it's gonna cost let's talk about adverse selection so companies they strive to protect themselves from adverse selection that means selecting undesirable risk so selecting folks who maybe are about to die tomorrow poor risk those folks who are poor risk or they give the company more exposure they're more likely to file a claim so to protect themselves from adverse selection companies have an option to refuse or restrict coverage and we're gonna talk a little bit about rates and how they do that so let's talk about who are the parties involved in insurance right so these this is gonna be a bit of the rules so that's a good way to turn this section I want to write down roles or parties well number one you have the insurers insurers those are the insurance companies insurers so you have private companies you have government you have insurers so in the case of government it would be Medicare is you know one example and then private company would be a company like Primerica or Mutual of Omaha State Farm so private companies can be classified in different ways number one ownership so whether or not the company is a stock company or mutual company so let's dig into that a little bit stock company means that it is owned by stock holders the stock holders do not have to have a policy with the company so just like when you see the New York Stock Exchange let's say there's a company that's listed on the New York Stock Exchange called spark the people who own stock in spark don't have to have a policy with spark these folks when when you look at the policies that are issued by a stock company they're called non-participating policies non-participating policies so policy owners do not share in the profit and loss of the company policy owners do not get paid dividends so under stock a company policy owners do not get paid dividends let's talk about mutual companies mutual companies they are owned by the policy holders so just like I always like to use the example of a credit union this is how I remembered it with my credit union I share in the gains of the credit union as the credit union grows and becomes more profitable I get dividends so policyholders in a mutual company they share in the profits and loss of the company they get paid dividends and they are issued participating policies participating policies the mutual companies are owned by the folks who have the policies dividends are not guaranteed now let's look at authorized versus unauthorized insurers so some insurers are authorized to do business in a certain state so authorized just means you have permission you are authorized to do business in state and then unauthorized or non admitted just means that they are not able to do business in that state they have not been admitted and I'm giving you the high points of the notes again I encourage you take class study whatever book or pamphlet you've been given because this is a doozy of a test but you can do it I promise you and these highlighted notes are the things that I've studied I promise you these are the key points that are on this exam all right let's talk about domestic foreign and alien insurers because that's another way to character rise insurance companies private insurance companies so location of the corporation matters domicile is the same as location so domicile right location I keep hearing something for hire me in my room like what is this noise and so regardless of where the company is founded it has to get a certificate of authority to operate in different states its domicile is its home and so whatever its home state that is this domicile and then it can be authorized to do business in different states via that certificate of insurance a domestic insurer it means that it's incorporated in that state so it's domestic to that state so if sparc insurance was formed in georgia it is domestic to Georgia is domicile is Georgia if it's doing business in another state is foreign to that state so a foreign insurer is incorporated in another state it's all that means it's doing business in another state now on your test I want to remind you that Puerto Rico Guam and the American Samoa are all a part of the u.s. so it will sound like all they're not in another state they're in another country no it's another state according to geography and so you want to remember that for your test the tests will try to trick you the Virgin Islands Washington DC the American Samoa Puerto Rico Guam those are all apart of the US so they would be considered foreign to your state and an alien insurer is a company that is incorporated outside of the United States so alien insurer is incorporated outside of the United States now insurance companies market themselves different ways and so their distribution is different and that's how the test might characterize this distribution this is how they market themselves how do they deliver to their customer and so it could be through agent or through direct solicitation now let's dive into types of marketing arrangements well then you have independent agency systems this is where you have an independent agent that represents several different companies this agent is non-exclusive the agent is non-exclusive they are not tied to only selling one policy from one company they have Commission's based on their personal sales and they renew with any company now you have the exclusive agency system or captive agent exclusive agency system or captive agent once you are a licensed to do business and you have an appointment with this company you can only write for that company so that's a captive agent so the agent one agent represents one company its exclusive Commission's are of course based on personal sales where news can only be placed with that appointment that company they have an appointment with general agency system this could be also considered a territory so territorial a general agent entrepreneur represents one company it's exclusive they get Commission and they have sub agents and then you have a managerial system this is where it's like salaried which would be a good way to remember this one there's a branch manager who supervises agents its salaried these agents can be insurer's employees or they could be independent contractors so there's a branch manager like a boss these folks are salaried agents and then you have direct response marketing systems this is where there's no agents so imagine those insurance companies that solicit you online and you call them that's direct response marketing so the company advertises directly to consumers and consumers apply directly to the company all right so let's move on to financial strength and stability of the companies so those are two vitally important characteristics about insurance companies and it's checked it is rated there are rating agencies to take a look at this so the financial strength is based on prior claims experience investment earnings levels of reserve and the reserve money is money that they keep in a separate account to cover their debt to their policyholders companies are required to have reserves and so it is not often that you're gonna hear you know they did not pay their claims all right there are rating services that rate the financial stability and strength of companies they invest Fitch Standard and Poor's Moody's Weiss so those names might ring familiar to you here's how that is applied so the financial rating system looks directly at the insurance company next concept is called reinsurance reinsurance this is the insurance or the insurers so reinsurance is a contract in which one company indemnifies another company for its liabilities and so that's like company a saying if you go out of business you run into some trouble Company B is your reinsurance company B is covering you it protects against catastrophic losses things like we saw during the financial crisis so let's talk about back to roles let's take a step back into the roles we've talked about the insurers now let's talk about the agents agent is producer so on the test if you see producer or if you see agent it's the same thing the agent is the producer that's you if you're taking this test so the agent is licensed to sell solicitor negotiate insurance contracts on behalf of a company so the way that I remembered in my notes is I produce policies for the company I am an agent I'm an arm of the company and the law of agency defines our relationship the company is the principal so the insurer is the company is the principal all right I don't know why in insurers they have to have ten words for the same thing I don't know what can explain but in this relationship it is given that an agent represents the insurer and not be insured I work for the company not the client I serve the client on behalf of the company any knowledge of the agent is presumed to be knowledge of the insurer so if I know that my client is smoking then I have to deliver that information to the insurer if the agent is working within the conditions of the contract the insurer is fully responsible so the company is fully responsible for the things that I do and that's why it's important whatever company that you go with that you operate with integrity and that you read the rules and that you know what you're expected to do because the company is responsible for your actions and lastly when the insured submits payment to the agent it is the same as submitting payment to the company so they give me a money order or a check it is the property of the company I can't commingle it I cannot lose it it belongs to the company all right so the agent is responsible for the field work the agent is responsible for making sure that the application is completed correctly and that the application is submitted in a timely fashion to the insurer and that the policy gets delivered back to the policy holder so that is the responsibility of the agent let's talk about the authority and powers of producers so the agency contract details the authority that the agent has contractually only those actions for which the agent is authorized are the actions that the agent can take so only the things that the my contract says I can do is what I can do that's my limitation the agents Authority is broader than the contract though and so this is where I want you to really write this down and listen to this over and over again there are three types of agent Authority number one is express expressed in my contract I want you to write that down expressed in my contract this is the written contract so Express Authority is expressed in my contract it is written implied this is assumed Authority example collecting premiums or delivering policies it is assumed that I'm a bring your policy vector it's assumed that you could submit your payment to me so that authority is called implied implied Authority is assumed it's not expressed in my contract but it is assumed that in order for me to do my job that I have this power I this adora T and the last is apparent apparent authority is the appearance of authority apparent Authority is the appearance of Authority having business cards having a rate book there's the appearance of Authority and then there are responsibilities that I have to the insured I work for the company but I have certain duty and responsibility to the applicant or the insured number one I have a fiduciary responsibility so I am a person of financial trust if I'm a fiduciary I'm a person in a position of financial trust so it's illegal for me to lose your money commingle your money anything that's not a pub forward the next thing is market conduct I must conduct myself as a professional with ethics and so producers must adhere to establish procedures and also abide by the code of ethics and if not there are penalties so there's some market conduct things that are regulated number one conflicts of interest so if I'm writing a policy and I know in there is a known conflict of interest with me being that writing agent or requesting a gift or loan from my client as a condition of complete business or supplying any confidential information all of those things are against the market conduct that you're supposed to have let's talk about the contract let's get to the juicy stuff so the contract is an agreement between two or more parties enforceable by law the contract in this case is the policy so gonna talk about the contract no policy being the same thing if you have any questions about anything leave it in the comments I'll be sure to get back to you you can hit me up on Facebook you can check out the website the purpose field woman calm and leave me a comment there however you get the comment to me I promise I'll try to help you as best I can so let's talk about elements of a legal contract a good memory hook for that is local LOC al local number one the L legal capacity let's talk about legal capacity so the person must be competent they must be able to understand the contract they must be the right age and the age is gonna depend on your state in Louisiana you have to be 15 the age is going to depend on your state and in Louisiana you have to be 15 the O is for offer so the offer I want you to take a look at when you when you think about any contract there is something that's being exchanged so as a service being exchanged for cash so you want to think about the offer in that type of thing so the offer equals cash and acceptance the policy all right so there's an offer on B from the company the offer comes from the company to the applicant and the applicant accepts it and sends what we call consideration that's what this c is for in local consideration so consideration is your money all right so consideration is something of value so that's what the application and the money is and then acceptance that's the a and local acceptance is when the client says yes to this policy so the company says we are extending this policy to you we give it to you and the client the company accepts you and issues your policy and then you have legal purpose it means that it's legal for this person to get this policy for example I thought you know the King of Pop was an amazing kind of soundtrack to me growing up you know knew all these different Michael Jackson songs I could not get insurance on Michael Jackson I love prints I could not get insurance on prints right it was not legal I didn't have a legal purpose and so let's take a moment to talk about legal purpose if you don't have insurance in a person's life you're not able to write a policy on them you could be a beneficiary and we're gonna get into that you can be a beneficiary but in terms of ownership of a policy so I think that usher is amazing dancer such a key part of my young adulthood I grew up watching Usher important person in my life I cannot go get on policy on us I might feel like my ex-boyfriend own me the world but guess what I cannot go get our policy on this person without their express permission and without me having some legal purpose for having it without me have an insurable interest is what we call that insurable interest boils down to I lose something if this person dies I lose something if this person dies right so that's local LOC al you got a legal capacity you have offer consideration acceptance and legal purpose all right so there are certain characteristics that make insurance contracts different from other contracts number one insurance contracts are aleatory that means that there's an exchange of an equal amount aleatory there's an exchange of unequal amounts for example I paced six or seven dollars a month I have $350,000 in coverage that's unequal I can pay that six or seven dollars one time and die and the company has to fork over $350,000 that's an exchange of an equal value next life insurance contracts are contracts of adhesion so I have to hold up my end of the bargain a contract of adhesion is created by the company and extend it to me and I adhere to it that's it I have to hold up my end of if I accept that contract the way it is I cannot negotiate it I have to hold up my end of it it's a take-it-or-leave-it type of deal contract of adhesion it's take it or leave it next it is a unilateral contract meaning I can break up with the insurance company but can't break up with me I can choose to walk away but contractually as long as I pay my premium and submit the claim the right way and don't commit any fraud they are legally obligated to pay it does that make sense they cannot break up they cannot drop me but I can drop them is unilateral it is one-sided they are legally bound to pay the loss as long as the policy is still good and then next let's talk about conditional it is a conditional contract it requires that certain conditions have to be met so my policy premium have to be up to date it's to be enforced there has to be a proof of loss in order for the insurance company to cover the claim and so we'll pick up in the next video and I'll start to talk about the legal interpretations that effect life insurance contracts I hope that this was helpful

Channel: The Purpose Filled Woman

Views: 306,687

Keywords: Life Insurance Exam

Id: zkHQ0cqlLDg

Length: 38min 51sec (2331 seconds)

Published: Thu Jan 02 2020